MUNHUMUTAPA SCHOOL OF COMMERCE

DEPARTMENT OF ACCOUNTING AND INFORMATION SYSTEMS

BACHELOR OF COMMERCE DEGREE

LEVEL 4 SEMESTER 2
EXAMINATION QUESTION PAPER
MODULE CODE AC418

MODULE NARRATION STRATEGIC TAXATION REVIEW

DATE

DURATION 3 HOURS

INSTRUCTIONS TO CANDIDATES:
1. Answer ALL Questions and marks are as allocated
2. Use of non – programmable calculators is permissible
3. Start each answer on a fresh page
4. You may bring into the examination unmarked copies of:
Income Tax Act (Chapter 23:06);
Value Added Tax Act (Chapter 23:12);
Capital Gains Tax Act (Chapter 23:01)
Finance Act (Chapter 23:04).

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Question 1

Mr Mari bought a house in Harare on 11 April 2009 at a cost of US$100,000. He repainted the
house in May 2008 at a cost of US$7,000 and in September 2011 he constructed a brick wall
surrounding the house for US$12,000. He put a ceiling and a driveway in January 2012 at a cost
of US$2,500 and US$2,100 respectively. In February 2014 his employer transferred him to
Mutare. He advertised the Harare flat on 1 March 2014 and thus incurred US$200 advertising
costs. He managed to get a buyer on 11 March 2014 and sold the property for US$190,000
Weivhu Real Estate, the estate agents who facilitated the sale, charged him 5% as agent’s
commission
. Required:
a) What is the capital gains tax involved? (15 marks)
b) If the property was sold under the following terms, what will be the capital gains tax for
the years the instalments are paid? Payments were made in the following order:
i) Year 1 US$100 000.00
ii) Year 2 US$45 000.00
iii) Year 3 US$45 000.00 (9 marks)

c) Outline the impact of a taxpayer making an election provided for in Section 21 of the
Capital Gains Tax Act (CAP 23:01) (6 marks)
[Total 30 marks]

Question 2
Zvapano (Private) Limited specialises in the manufacture of personal hygiene soaps and related
products at their factory in the southern industrial site of Harare. Zvapano commenced business
operations on 20 April 2013 and had an assessed loss of US$112 000 for the period ended 31
December 2013 attributable to large start-up costs in the first period of trading.

Turnover for the year ended 31 December 2014 amounted to US$1 980 000 of which US$700
000 related to export sales. Zvapano is trying to increase its turnover from export sales through
participation in foreign market trade fairs as well as other marketing campaigns. The gross profit
margin for the year ended 31 December 2014 was 60%.

Zvapano recorded a net profit of US$315 000 for the year ended 31 December 2014 after taking
into account the following transactions:

(i) Net rental income of US$280 000 received from the leasing of one wing of the head office
building situated in the central business district (CBD) of Harare.

(ii) A refund of US$20 000 representing value added tax (VAT) overpaid for the year.

(iii) Net interest received from local commercial banks of US$10 000.

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(iv) The registration of three trademarks, ‘Cleaner’, ‘Perfect’ and ‘Allfresh’, at a total cost of
US$30 000 in respect of Zvapano’s personal hygiene soaps. The market research expenses
incurred in connection with the development of these soaps amounted to US$65 000. ‘Allfresh’
is a hygienic wet paper soap developed specifically to assist in the efforts to fight cholera and
other waterborne diseases in areas where there are erratic water supplies.

(v) A donation of US$120 000 to a local council school as part of Zvapano’s corporate social
responsibility programme.

(vi) Depreciation of fixed assets of US$67 000.

(vii) Marketing costs of US$88 000. US$25 000 of these costs were incurred when the export
market development manager attended two trade conventions and one trade mission as part of
Zvapano’s efforts to increase its export sales. The trade mission was duly approved. The
remaining US$63 000 of costs were incurred in marketing Zvapano’s soaps to foreign markets.

(viii) General repairs and maintenance costs amounting to US$140 000. US$28 000 of this
amount was incurred in underpinning the office building to strengthen its foundations against
subsidence.

(ix) Exceptional costs amounting to US$290 000 as a result of the production manager incurring
an injury whilst working on one of the production lines in the factory. The production manager
was rendered incapacitated as a result of the incident.

Zvapano settled out of court and US$250 000 of the costs relate to a payment made to the
production manager in full settlement of the case. US$50 000 of the US$250 000 out-of-court
settlement was paid in order to prevent the production manager from setting up a similar
business in competition with Zvapano.

The remaining US$40 000 of costs represent fines imposed by the factory inspectorate following
the incident. The production line was also condemned as a result.

(x) Rental expenses paid for the canteen building and equipment amounting to US$48 000. The
canteen is owned by another company. Other canteen expenses amounted to US$75 000 for the
year.

(xi) Interest paid of US$30 000. The interest was incurred in respect of Zvapano’s US$200 000
overdraft facility. US$100 000 of the facility was applied towards recurrent expenditure while
the other US$100 000 of the facility was applied towards the cost of a new showroom (see
additional information note 2, below).

(xii) Other expenses incurred during the year amounted to US$230 000. ZIMRA considers 40%
of these expenses to be prohibited for tax purposes.

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Additional information
(1) Zvapano’s projected taxable income for the year ended 31 December 2013 amounted to
US$360 000. The accountant remitted the provisional tax for the three quarterly payment dates
(QPDs) on time but, due to the pressures of year-end work, forgot to submit the return for the
final QPD. The accountant also omitted the brought forward assessed loss from his computations
of the provisional tax.

(2) During the year a showroom was constructed in close proximity to Zvapano’s factory
building. The showroom is used to display the soaps from the factory as well as for storage
purposes pending shipment to various destinations. The showroom was constructed at a total cost
of US$100 000 and was wholly funded by Zvapano’s overdraft facility.

The showroom was brought into use on 1 August 2014. Zvapano has made all tax appropriate
elections in connection with the showroom.

(3) Details of Zvapano’s other fixed assets are provided below. These were all
acquired/constructed during the year ended 31 December 2013:
Cost (US$)
Factory building 200 000
Plant and machinery (operates two shifts) 110 000
Office building 120 000
Furniture and equipment 60 000
Commercial vehicles 50 000
Three passenger vehicles 80 000
Required:
(a) Calculate the capital allowances claimable by Zvapano (Private) Limited for the year ended
31 December 2014, assuming all favourable elections are made. Your answer should explain the
treatment of the showroom. (9 marks)

(b) Calculate the provisional tax which should have been paid by Zvapano (Private) Limited for
the year ended 31 December 2014, clearly indicating the due dates and the respective tax
amounts. (4 marks)

(c) Calculate the taxable income and corporate tax payable by Zvapano (Private) Limited for the
year ended 31 December 2014.

Note 1: Your answer should start with the net profit figure of $315 000 and list all of the items
referred to in notes (i) to (xii), indicating the correct tax treatment of each item by the use of zero
(0) on any items which do not require adjustment.

Note 2: Your calculations should assume that the provisional tax paid was as calculated in part
(b) of the question. (15 marks)

(d) Explain the tax advantage which may accrue to Zvapano (Private) Limited if, in future years,
it increases its export market sales as a proportion of total sales. (2 marks)
[Total 30 marks]

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Question 3
Felix and Godfrey are in partnership sharing profits equally. Partnership profits per
accounts for the year ended 31 December 2014 is $164,000 after charging the following
expenses:
Depreciation 12,000.00
Legal fees 5,200.00
Rates 6,000.00
Rent 5,000.00
Entertainment 3,000.00
Architect’s fees 1,200.00
Purchase of a motor vehicle 15,000.00
Accounting fees 1,800.00
Electricity 800.00
Felix’s salary 6.500.00
Motor vehicle expenses 15,500.00
Interest on capital accounts: Godfrey 2,500.00
Felix 3,100.00
Life insurance : Godfrey is beneficiary 600.00
Joint life policy 2,400.00

Further information:
The partnership has a P.O.S.B account on which interest of $1,400.00 has been credited to the
Profit and Loss account. Special Initial Allowance has been claimed. The legal fees were paid to
a lawyer who was handling Godfrey’s nasty divorce case which was in the court. Godfrey
received a commission of $5,000.00 for making the largest volume of sales and a dividend from
Econet Zimbabwe. Felix who is 60 years old, received an interest from SA bank account of
$2,100.00 (NRTI $525.00). The following assets were bought two years ago and their income
tax values are:
Furniture and fittings $50,000 (original cost $100,000)
Machinery $ 6,000 (original cost $12,000)
S.I.A was claimed the previous year. Godfrey uses the partnership car 25% for private purposes.
During the year Felix received lobola in the sum of $6,500.00 for his daughter who was married
by his partner, Godfrey.
Required:
Calculate each partner’s tax payable. (20 marks)
Question 4
Discuss the likely impact of regressive tax system as a way of levying corporate tax in promotion
of production in Zimbabwe. (20 marks)
Question 5
Shabani Mashaba Mine Limited is a mine which mines asbestos and is situated 50 kilometres
west of City of Masvingo. The unredeemed balance of capital expenditure brought forward as at
31 December 2015 was $800,000.00. Sales of asbestos during the year realized $1,980,000.00.
During the year the company sold excess mining equipment and realized $55,000.00. The

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company received interest from CABS savings account in the sum of $10,200.00. The following
capital expenditure was incurred during the current year:
$
Purchase of a Toyota Camry 11,000.00
Earthmoving equipment 350,000.00
Mining buildings 300,000.00
Plant and equipment 65,000.00
Computers 10,700.00
Staff housing 97,510.00
Mine clinic 60,000.00
Nurse’s house 65,000.00
Shaft sinking 210,500.00
Purchase of boiler 15,400.00

The following expenses were incurred:

$
Salaries and wages 500,500.00
Goodwill written-off in P/L 2,500.00
Administrative expenses 45,000.00
Insurance (Allowable) 12,000.00
Depreciation for the year 31,400.00
Rentals 25,300.00
Interest 3,000.00

Additional Notes:
 The staff houses were being used by mining engineers.
 The salaries and wages figure include $25,000.00 paid to the company’s Marketing
Managers as entertainment allowances.
 The interest was in respect of a loan in the sum of $200,000.00 advanced to the
company by Steward Bank for mining operations of which $50,000.00 was loaned to
Mr Nyoni who is the Managing Director by at no interest.
 Administration expenses include:
 $1,500.00 legal fees incurred in tracing a trade debtor.
 $5,000.00 being fine imposed by EMA for failure to submit the Environment
Impact Assessment form on time.
 $2,000.00 to ZANU (PF) to finance election victory celebrations.
Required:
Calculate the company’s tax payable for the year ending 31 December 2015 assuming that it has
claimed capital redemption allowance using Para 4(2) of the 5th Schedule of the Income Tax Act
(Chapter 23:06). The estimated life of the mine by the end of the year is 7 years. (25 marks)
Question 6

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Mr Chouviri bought a house in Rhodene, Masvingo for US$85 000 which amount excludes
stamp duty of $2 000 in June 2009 and he had made the following additions/improvements to the
property:
 Constructed a garage and work shop for $14 000 in April 2010 and these were attached to
the main house.
 Tarred the drive way at cost of $10 000 in August 2010.
 Sunk a borehole at a cost of $12 000 in January 2011.

The main house was damaged by fire on 1 January 2012 while the family was away on holiday
and Mr Chouviri received a compensation in the sum of US$66 000 and immediately used the
proceeds to construct a similar structure, after that he made the following additions:
 Constructed a durawall around the property at a cost of $5 500 in July 2012.
 Constructed a swimming pool for $15 000 in July 2013.

He sold his Rhodene, Masvingo House for $220 000 and purchased another Principal Private
Residence in Messina, South Africa for $140 000 on 28 December 2018 and 30 December 2018
respectively.
Mr Chouviri hopes his move to relocate to Messina will help him to establish a business at
Beitbridge.

Mr Chouviri also incurred expenditure amounting to $4 800.00 in connection with the sale of the
property. The expenditure was broken down as follows:
 Repainting the garage and workshop $1 100
 Goodwill $1 000
 Advertising $500
 Estate Agent’s Commission $2 200

Required
a)Calculate Mr Chouviri Capital gains tax liability if any. You also have to consider his
submission for an election for roll over in terms of section 21 of the Capital Gains Tax
Act. (25 marks)
b) If the payments for the house were made as shown below, what will be the capital gains
tax payable for each of the years the installments are paid:
Year 1: $120,000.00
Year 2: $60,000.00
Year 3: $40,000.00 (6 marks)
Question 7
(a) A friend has been in business for many years and his business consists solely of the
supply of VAT exempt goods and services. Advise him what is meant by VAT exempt
and its effects on VAT liability and registration. (7 marks)
(b) Discuss the fairness or lack thereof, when Zimbabwean Tax Authorities impose taxes on
churches. (15 Marks)
[Total: 22 marks]

Page 7 of 37
Question 8

(c) A friend has been in business for many years and his business consists solely of the
supply of VAT Zero-rated goods and services. Advise him what is meant to be trading in
zero-rated goods and services and its effects on VAT liability and registration. (7 marks)

(d) The friend also operates another business in Chipinge selling car parts, registered for
VAT purposes as Hambirachimwe Spares (Pvt) Ltd. During September 2016 the business
had the following transactions (all amounts exclude VAT):

US$
Sales 864 000
Local sales 810 000
Mozambique 54 000
Purchases 569 000
Purchases of spare parts from Japan 80 000
Purchases of spares from South Africa 20 000
Wages 12 000
Insurance 6 000
Accounting fees 5 000
New car (passenger motor vehicle) 25 000
New machine to make some spares 125 000
Diesel for car 8 000
Petrol for truck 1 000
Lease payment for machine 4 000
Net position 9 000
Required
Calculate the VAT liability or refund for Hambirachimwe Spares (Pvt) Ltd for the month of
September 2016. (15 marks)
[Total: 22 Marks]

Question 9

Mr Toriro is a livestock farmer in the Mvuma farming area. His farm, Solomon & David, was
declared an epidemic area by the Minister of Agriculture early in 2014, due to an outbreak of
anthrax disease. This epidemic status was expected to last for three years from 2014. His
projected taxable income for the three tax years from 2014 is as follows:
a) The total taxable income for the 2014 tax year was $50,000.00, after taking into account
taxable income of $30,000.00 from forced sales of livestock due to the epidemic
breakout.

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 b) The total taxable income for the 2015 tax year amounts to $25,000.00 after taking into
consideration $15,000.00 taxable income from forced sales of livestock due to the disease
epidemic.
c) For 2016 tax year, taxable income was projected to be $15,000.00 after taking into
consideration taxable income of $18,000.00 from forced sales due to the farm being
acquired by the Government for resettlement purposes.
Required:
Calculate the minimum taxable incomes for the Solomon & David Farm for each of the three
years – 2014, 2015 and 2016. (15 marks)
Question 10
Kupa and Titi are sisters and equal partners in their partnership business, K & T architects and
structural engineers.

The partnership is in its third year of trading and operates from office premises owned by Kupa.
Titi provides all of the office furniture and equipment used by the partnership. In line with the
partnership agreement, Kupa and Titi are entitled to a monthly payment equal to 5% of the cost
of their fixed assets which are used by the partnership.

Kupa and Titi use their own personally acquired motor vehicles for partnership business and
charge the partnership for the business mileage incurred. The partnership employs three staff in
addition to the partners. The partnership’s statement of profit or loss for the year ended 31
December 2016 is as detailed below:
Note US$
Income 730 000
Less expenses:
Distribution expenses 1 (160 000)
Administrative expenses 2 (290 000)
Other expenses 3 (30 000) (480 000)

Profit for the year 250 000

Notes:

1. Distribution expenses comprise:

US$
Motor vehicle running expenses 70 000
Insurance and licensing 40 000
Parking fines 6 000
Business mileage claim: Kupa 24 000
Titi 20 000
160 000
2. Administrative expenses comprise:
US$
Salaries: Staff 40 000

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 Kupa 60 000
Titi 60 000
Pension fund contributions: Staff 18 000
Kupa 10 000
Titi 10 000
Insurance premium: Partnership joint life policy 8 000
Loss of profit 20 000
Partners life policies: Kupa 8 000
Titi 5 000
Medical aid contributions: Staff 3 000
Kupa 6 000
Titi 4 000
Depreciation 23 000
Repairs and maintenance 15 000
290 000

3. Other expenses comprise:

US$
Interest on capital accounts: Kupa 16 000
Titi 14 000
30 000

The following is an extract from the fixed asset register for the year ended 31 December 2016:
Cost Income tax value
US$ US$
Office premises 130 000 120 250
Office furniture and equipment 80 000 20 000
Passenger motor vehicles (2) 60 000 5 000

Required:
(a) Briefly explain, in general terms, how partnership income is taxed. (10 marks)
(b) Calculate the joint partnership taxable income/(loss) for the year ended 31 December 2016.
(7 marks)
(c) Calculate the taxable income and income tax payable by both Kupa and Titi for the year
ended 31 December 2016. (8 marks)
[Total: 25 Marks]
Question 11
a) Discuss the factors that affect tax compliances in your country, and suggest what the
taxing authority must do to improve tax compliance. (15 marks)
b) What is tax planning? Discuss its impact on tax revenue of a country. (15 marks)
c) Discuss whether churches in Zimbabwe should be taxed. Give the parameters and
guidelines if this issue really needs to be considered. (10 marks)
[Total: 40 Marks]
Question 12

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Discuss the major factors that determine tax compliance in Zimbabwe. (25 marks)

Question 13
Mushongandini Mining Corporation Limited is into gold mining business. Exploration work
started in 2017 and the company became productive on 1 January 2018. The Unredeemed
balance of Capital Expenditure (UBCE) brought forward from 2017 was US$540,700.00:

During the year 2018, the company made a net loss of $233 000 which was arrived at after
charging the following expenses:-
$
Loss on disposal of a dumb truck 50 000
Purchase of Mazda 626 sedan 25 000
Amortization of goodwill 15 000
Wages and salaries 255 000
Rentals 15 000
Purchase of shares from the Zimbabwe Stock Exchange 122 000
Depreciation 32 000
Other Administration expenses (Allowed by ZIMRA) 137 120

The composition of the company’s income during the year 2018 was made up of the following:-
$
Gold sales 2 530 000
Proceeds from disposal of dumb truck 150 000
Dividend from OK Zimbabwe Ltd 6 400
Dividend from Zambian company 11 500
Rentals from Malawi 12 200
Interest from FBC Bank Ltd 1 200

The company acquired the following non-current assets during the year 2018:-
$
Modern mine generator 162 500
Toyota Camry sedan for the Accountant 18 000
Mercedes Bus 75 Seater 230 000
Staff housing 124 000
Shaft sinking 541 000

Required
a) Calculate the Capital Redemption Allowance for the company using each of the
following methods:-
i) Life of Mine Basis (5 Marks)
ii) New Mines basis (5 Marks)
iii) Mixed Basis (5 Marks)

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Calculate the company’s tax liability/(assessed loss) for the year when using New Mines basis
for the purpose of calculating Capital Redemption Allowance. (5 Marks)
[Total: 20 Marks]
Question 14
Ms Mazaiwana is the manageress of an expensive ladies’ clothing boutique. The owner of the
store requires her to wear clothes from the boutique as a condition of the job. She earns about
$36,000.00 a year and dresses from the boutique cost about $1,200.00 each. She purchases four
new dresses a year. She never wears the dresses except at work because she does not want to
wear them out and because she seldom goes places where they would be appropriate.

Required:
a) Do you this it’s appropriate to allow the cost of the clothes as a deduction from her
income? Give reasons. (15 marks)
b) Assuming that she is an independent contractor can she deduct the cost of the dresses?
(5 marks)
Question 15
A company starts mining operations in year 1 which was not productive. The life of the mine is
estimated at 5 years from year 2 when the mine begins to produce minerals. The following
expenditure was incurred in year 1: $
Buildings 90,000.00
Plant 35,000.00
Shaft sinking 20,000.00
Goodwill written-off 9,000.00
Salaries and wages 15,600.00
Administration expenses 10,000.00
Mazda 626 sedan 11,500.00
191,100.00

In year 2 minerals are sold for $610,000.00 and old plant equipment was disposed realizing
$11,200.00. The following expenditure was incurred in year 2:
$
Machine 12,000.00
Goodwill written-off 9,000.00
Running expenses 35,000.00
Shaft sinking 25,000.00
Administration costs 23,500.00
Salaries and wages 18,900.00.
Required:
Calculate the taxable income for the company for year 2 when using the following methods to
compute capital redemption allowance (CRA):
i) Life of mine method

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 ii) Mixed basis
iii) New mine or current basis (25 marks)
Question 16
a) Discuss the main features that makes tax appear to be a bad concept in our country.
(15
Marks)
b) Critically analyse the “Slippery slope model” as suggested by Kirchler et al (2008) as a
concept that may affect tax compliance in Zimbabwe. (15 marks)
[Total 30 marks]
Question 17

Discuss the five tax concessions available to farmers. (10 marks)

Question 18

Outline what should be considered before an expenditure is capitalized or not. (20 marks)

Question 19

The Zimbabwean tax legislation does not recognize a partnership as a “person” in the definition
of gross income, citing the relevant sections of the Income Tax Act (Chapter 23:06) outline how
partnerships are then taxed in Zimbabwe. (25 marks)
Question 20

Discuss the main reasons why it might be necessary or unnecessary for the Government of
Zimbabwe to consider taxing income generated in the operations of churches in Zimbabwe.
(25
marks)

Question 21
Discuss how lease improvements should be taxed in the hands of the lessor especially the issue
about the value of the improvements in the building clause, how alterations to the building clause
can be handled if they are necessary and to be acceptable for tax purposes, also address the
impact of the opinion of the statutory body (like Council) on the value of the improvements to
the building clause or any changes to the same. Use case law to support your answer.
[Total: 15 Marks]
Question 22
Mr Madzimure returned the following income for the year ending 31 December 2014:
$

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Salary 31 100.00
Bonus 2 400.00
Cash in lieu of leave 1 500.00
Payment on cessation of employment 7 000.00
Payment on commutation of amount due
Under a contract of employment 14 150.00
SA rental income for a house 3 500.00
Interest from CABS 1 250.00
Dividend from OK Zimbabwe 4 400.00
Interest from SA bank 1 900.00 (NRTI $50.00)
Interest from Botswana bank 5 300.00 (NRTI $1 450.00)
Interest from Namibian bank 4 700.00 (NRTI $1 175.00)
Dividend from SA company 7 410.00 (NRST $1 020.00)
Dividend from Malawian company 6 000.00 (NRST $1 500.00)
Lumpsum payments
Benefit fund 10 430.00
Pension fund 15 000.00
Annuity 35 800.00

Additional Information
Mr Madzimure drives a company car with an engine capacity of 2 300cc and received a soft loan
of $3 000.00 from his employer which he used half the amount for professional studies in South
Africa and the rest was used to pay lobola for his sweetheart, Beauty. The loan is payable to the
employer at 2.5% interest per annum. He occupies a company house and the open market rentals
for similar houses in the same area is $13 800.00 per annum and he is paying rent to the
employer of $600.00 per month for the house.

Mr Madzimure made contributions to a pension fund in the sum of $4 800.00 per annum and $4
800.00 to his medical aid society for the year. He is 60 years old. The annuity was purchased in
Zimbabwe and its cost was $121 000.00 and there are 12 expected payments. Of the pension
lump sum payment he transferred $3 000.00 to his new employer’s pension fund.

Required
Assuming that Mr Madzimure made all elections that are available to him and a LIBOR of 8%,
compute his tax liability. Show all your workings. (30 marks)
Question 23
Mirai Mining Corporation Limited is into gold mining business. Exploration work started in
2016 and the company became productive on 1 January 2017. The Unredeemed Balance of
Capital Expenditure (UBCE) brought forward from 2016 was US$440,000.00:

During the year 2017, the company made a net loss of $150 000 which was arrived at after
charging the following expenses:-
$

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Loss on disposal of a dumb truck 50 000
Entertainment expenses 15 150
Purchase of Mazda 626 sedan 25 000
Amortization of goodwill 15 000
Wages and salaries 255 000
Rentals 15 000
Purchase of shares from the Zimbabwe Stock Exchange 122 000
Depreciation 32 000
Other Administration expenses (Allowed by ZIMRA) 137 120

The composition of the company’s income during the year 2017 was made up of the following:-
$
Gold sales 1 500 000
Proceeds from disposal of dumb truck 150 000
Dividend from OK Zimbabwe Ltd 6 500
Dividend from Zambian company 10 500
Rentals from Malawi 12 000
Interest from FBC Bank Ltd 1 200

The company acquired the following non-current assets during the year 2017:-
$
Modern mine generator 160 500
Toyota Camry sedan for the Accountant 18 000
Mercedes Bus 75 Seater 230 000
Staff housing 285 000
Shaft sinking 541 000
Required
b) Calculate the Capital Redemption Allowance for the company using each of the
following methods:-
iv) Life of Mine Basis (5 Marks)
v) Mixed Basis (5 Marks)

Calculate the company’s tax liability/(assessed loss) for the year when using New Mines basis
for the purpose of calculating Capital Redemption Allowance. (10 Marks)
Question 24
Mrs Mbanda a registered operator sold her hair salon business to Mrs Sengayi also a registered
operator, for $300,000 and the other equipment like basins, chairs, and other accessories to her
niece who also operated a hair salon business in Mashava for $50,000. The $300,000 was made
up of Shop building $250,000 and goodwill $50,000. No VAT was accounted on both sales as
Mrs Mbanda applied the rate of 0% on the basis that it was a supply of a going concern. Advise
the client on the treatment of both supplies in terms of the VAT Act. [4 Marks]

Question 25

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John Muchuchu runs a business in Kariba near to where he currently lives. John relocated to
Kariba in pursuit of his business on 30 May 2015. Prior to this date, John lived in Harare where
he owns a property, which is his principal private residence (PPR). On his relocation to Kariba,
John found a tenant for his fully furnished PPR in Harare and started to rent out the property
from 1 June 2015.

In order to fully fund his lucrative business venture, John entered into an agreement to sell his
PPR to his tenant on 5 August 2018. One of the conditions in the agreement of sale was that the
buyer would also acquire the movable property together with the house. The sale price agreed
was the market value of the property. A reputable estate agent had valued the property as at 31
July 2018 as shown below:
Date acquired/ Cost Market value
constructed US$ US$
Main residence 31 March 2013 120 000 200 000
Concrete wall 15 January 2014 30 000 50 000
Double lock up garage 20 June 2014 50 000 70 000
Swimming pool 28 February 2015 20 000 30 000
Swimming pool equipment 28 February 2015 10 000 20 000
Furniture, fittings and equipment 25 May 2015 40 000 60 000
–––––––– –––––––
270 000 430 000
–––––––– –––––––
John incurred expenses amounting to 10% of the selling price in connection with the disposal of
his property.

Additional information
(1) On 22 December 2018, John offered his son a wedding gift of 10 000 listed shares. John had
originally acquired the shares in 2014 for US$0·50 per share. The market price of the shares as at
22 December 2018 was US$2·50 per share.

(2) John is fully tax compliant and has always opted to claim the maximum permitted capital
allowances.

Required:
(a) Explain the capital gains tax implication of the wedding gift and calculate John
Muchuchu’s capital gains tax liability associated with this gift. (4 marks)
(b) Outline the tax treatment of a principal private residence which is used for business
purposes. (2 marks)
(c) Calculate the income tax and capital gains tax payable by John Muchuchu as a result of
the disposal of his principal private residence in the year ended 31 December 2018.
(9 marks)
(Total 15 marks)
Question 26
Assuming a LIBOR of 7% compute the tax payable by Trish Zivanai who is employed by
Kumirai (PVT) Ltd given the following annual figures:

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 (i) Basic salary $25,700.00
(ii) Cash in lieu of leave $3,200.00
(iii) Compensation for injury at work $10,000.00
(iv) Lumpsum payment – Pension Fund $65,000.00
(v) Interest from Zambian Bank $1,234.00 (NRTI $250.00)
(vi) Interest from Namibian Bank $2,545.50 (NRTI $561.23)
(vii) Interest from SA Bank $4,666.12 (NRTI $2,100.00)
(viii) Dividend from Zambian Co. $1,500.00 (NRST $450.00)
(ix) Dividend from SA Co. $554.00 (NRST $175.00)
(x) Dividend from UK Co. $356.12 (NRST $95.00)
(xi) Dividend from Econet Zimbabwe $1,413.11
(xii) Entertainment allowance $1,410.00
(xiii) Lobola for her last daughter $1,100.00
(xiv) Transport allowance $6,500.00
(xv) Bonus $2,500.00
(xvi) Commission $11,100.00
(xvii) She received an interest free loan from her employer in the sum of $15,500.00
which she used to acquire a new car from Singapore.
(xviii) She occupied a house owned by Kumirai P/L from July 2015 onwards and she
paid $450.00 rent per month for the house. The open market rent for similar
houses in the same suburb is $600.00. Before July 2015 she was renting a house
where she was paying $300.00 per month.
(xix) In October 2015 she started using a company car with 2,200cc engine capacity for
employer’s business and private purposes as well.
(xx) Total medical aid contributions for Trish are $900.00 and the company pays 60%
of the medical aid contributions.
(xxi) She contributed $6,100.00 towards a registered pension fund.
(xxii) She acquired quality costumes from Dubai which she puts on only when attending
important meeting at work valued at $2,500.00 during the year, in fact her
employer expects her to be well dressed when attending important meetings since
she will be representing the company.
(xxiii) Trish is 58 years old and her backbone is permanently disabled. (25 marks)

Question 27
Discuss the importance of government having to tax its residents and or citizens as a way of
raising revenue instead of relying on donor funds to finance public expenditure. (15 marks)

Question 28

Mr Farai (58) is employed by EF Ltd. He has the following information for 2018.
(a) Annual salary $45 000
(b) Bonus $3 000
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 (c) Mr Farai took a 12-day business trip to Germany and Mrs. Farai travelled with him. EF
Ltd paid the following expenses in connection with the trip;

Mr. Farai Mrs. Farai

Air tickets 12 000 12 000
Accommodation 22 000 no extra cost
Meals 25 000 25 000
Siteseeing tour nil 3 000

(d) Mr. Farai rented a flat for his residence at $2 200 per month. His employer refunded him
$1 800 monthly upon production of a tenancy agreement and receipts of the rentals. The
market rental of the flat was $28 000 per annum.
(e) Mr Farai obtained a loan of $450 000 from his employer to purchase a car for his own
use. During the year he paid $6 000 interest to his employer. The LIBOR was 2.45%.
(f) At the annual dinner held by the employer, he won a cash coupon of $3 000 in a lucky
draw.
(g) Mr. and Mrs Farai paid the following expenses during the year;
Mr. Farai Mrs. Farai
Membership of ACCA 2 350 2 350
Cash donations to charity org 15 000 5 000
School fees for MBA 40 000 nil

Required
Calculate the tax payable by Mr. Farai for the 2018. (15 marks)

Question 29
Fambai Ltd operates a fleet of buses that ply intercity routes in Zimbabwe. Fambai Ltd
commenced operations on 1 January 2018. They have a profit before tax of $234 567 for the year
ended 31 December 2018. This has been arrived at after the following amounts:
Payments and provisions
Diesel and petrol $150 000
Repairs (see note 1) $ 50 000
Staff pension contributions $ 30 000
Operating licence (five year) $ 2 000
Legal fees (see note 2) $ 3 200
Salaries and wages $ 60 000
Depreciation $ 33 800
Hire of buses when their own buses were down $ 45 000
Compensation to deceased and injured passengers $ 75 678
Provision for payment to injured or deceased passengers $ 60 000

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 Loan to Driver (who later died in an accident) written off as bad debt $ 4 500
Fines for road offences $ 3 230
Fine for late submission of QPDs $ 600
Purchase of 5 Yutong buses (2 January 2018) $600 000
Purchase of 2 Marcopolo luxury buses (1 July 2018) $400 000
Computer equipment (purchased 1 January 2018) $ 44 000
Lease premium (note 3) $ 38 000
Lease rentals (note 3) $ 138 000
Donation to Road Accident Fund $ 1 500
General expenses $ 31 510
Compensation paid out to passengers for luggage damaged (note 5) $ 18 000
Incomes received
Compensation received (note 5) $120 000
VAT refund $ 22 500
Sale of excess computers (sold at cost on 1 December 2018) $ 12 000
Dividends received from Shares in Share Stare ltd $ 2 500

Notes
1. Repairs
These are made up of:
Regular service to buses $10 000
Fitting of toilet and ablution system on the two luxury buses $40
000
2. Legal Fees
Cost of appeal on VAT – this was successful $ 4 000
Hire of lawyer to defend a driver who had been arrested for bribe $ 3 200
3. Lease arrangements
Fambai Ltd entered into a lease agreement with Zvivakwa Realtors Ltd for the lease of
premises that were used as offices, garages and parking areas. The lease was for 12 years.
Included in lease rentals is an amount of $30 000 that was for the construction of a
perimeter wall which had been agreed upon. The perimeter wall was completed on 1 July
2018.

5. Compensation received comprised of:

Compensation for bus the lost bus in an accident $100 000
Compensation for the down time of the bus involved in the accident $ 2 000
Compensation received on behalf of passengers’ damaged luggage $ 18 000

Required
Determine the minimum tax liability of Fambai Ltd for the year ended 31 December 2018. (25
Marks)

Page 19 of 37
Question 30
Ethel Baths Industries (Private) Limited (EBI) specialises in the manufacture of personal hygiene
soaps and related products at their factory in the southern industrial site of Harare. EBI
commenced business operations on 20 April 2013 and had an assessed loss of US$112 000 for
the period ended 31 December 2013 attributable to large start-up costs in the first period of
trading.

Turnover for the year ended 31 December 2014 amounted to US$1 980 000 of which US$700
000 related to export sales. EBI is trying to increase its turnover from export sales through
participation in foreign market trade fairs as well as other marketing campaigns. The gross profit
margin for the year ended 31 December 2014 was 60%.

EBI recorded a net profit of US$315 000 for the year ended 31 December 2014 after taking into
account the following transactions:

(i) Net rental income of US$280 000 received from the leasing of one wing of the head office
building situated in the central business district (CBD) of Harare.

(ii) A refund of US$20 000 representing value added tax (VAT) overpaid for the year.

(iii) Net interest received from local commercial banks of US$10 000.

(iv) The registration of three trademarks, ‘Cleaner’, ‘Perfect’ and ‘Allfresh’, at a total cost of
US$30 000 in respect of EBI’s personal hygiene soaps. The market research expenses incurred in
connection with the development of these soaps amounted to US$65 000. ‘Allfresh’ is a hygienic
wet paper soap developed specifically to assist in the efforts to fight cholera and other
waterborne diseases in areas where there are erratic water supplies.

(v) A donation of US$120 000 to a local council school as part of EBI’s corporate social
responsibility programme.

(vi) Depreciation of fixed assets of US$67 000.

(vii) Marketing costs of US$88 000. US$25 000 of these costs were incurred when the export
market development manager attended two trade conventions and one trade mission as part of
EBI’s efforts to increase its export sales. The trade mission was duly approved. The remaining
US$63 000 of costs were incurred in marketing EBI’s soaps to foreign markets.

(viii) General repairs and maintenance costs amounting to US$140 000. US$28 000 of this
amount was incurred in underpinning the office building to strengthen its foundations against
subsidence.

(ix) Exceptional costs amounting to US$290 000 as a result of the production manager incurring
an injury whilst working on one of the production lines in the factory. The production manager
was rendered incapacitated as a result of the incident.

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EBI settled out of court and US$250 000 of the costs relate to a payment made to the production
manager in full settlement of the case. US$50 000 of the US$250 000 out-of-court settlement
was paid in order to prevent the production manager from setting up a similar business in
competition with EBI.

The remaining US$40 000 of costs represent fines imposed by the factory inspectorate following
the incident. The production line was also condemned as a result.

(x) Rental expenses paid for the canteen building and equipment amounting to US$48 000. The
canteen is owned by another company. Other canteen expenses amounted to US$75 000 for the
year.

(xi) Interest paid of US$30 000. The interest was incurred in respect of EBI’s US$200 000
overdraft facility. US$100 000 of the facility was applied towards recurrent expenditure while
the other US$100 000 of the facility was applied towards the cost of a new showroom (see
additional information note 2, below).

(xii) Other expenses incurred during the year amounted to US$230 000. ZIMRA considers 40%
of these expenses to be prohibited for tax purposes.

Additional information
(1) EBI’s projected taxable income for the year ended 31 December 2013 amounted to US$360
000. The accountant remitted the provisional tax for the three quarterly payment dates (QPDs) on
time but, due to the pressures of year-end work, forgot to submit the return for the final QPD.
The accountant also omitted the brought forward assessed loss from his computations of the
provisional tax.

(2) During the year a showroom was constructed in close proximity to EBI’s factory building.
The showroom is used to display the soaps from the factory as well as for storage purposes
pending shipment to various destinations. The showroom was constructed at a total cost of
US$100 000 and was wholly funded by EBI’s overdraft facility.

The showroom was brought into use on 1 August 2014. EBI has made all tax appropriate
elections in connection with the showroom.

(3) Details of EBI’s other fixed assets are provided below. These were all acquired/constructed
during the year ended 31 December 2013:
Cost (US$)
Factory building 200 000
Plant and machinery (operates two shifts) 110 000
Office building 120 000
Furniture and equipment 60 000
Commercial vehicles 50 000
Three passenger vehicles 80 000

Page 21 of 37
Required:
(a) Calculate the capital allowances claimable by Ethel Baths Industries (Private) Limited for the
year ended 31 December 2014, assuming all favourable elections are made. Your answer should
explain the treatment of the showroom. (9 marks)

(b) Calculate the provisional tax which should have been paid by Ethel Baths Industries (Private)
Limited for the year ended 31 December 2014, clearly indicating the due dates and the respective
tax amounts. (4 marks)

(c) Calculate the taxable income and corporate tax payable by Ethel Baths Industries (Private)
Limited for the year ended 31 December 2014.

Note 1: Your answer should start with the net profit figure of $315 000 and list all of the items
referred to in notes (i) to (xii), indicating the correct tax treatment of each item by the use of zero
(0) on any items which do not require adjustment.

Note 2: Your calculations should assume that the provisional tax paid was as calculated in part
(b) of the question. (15 marks)

(d) Explain the tax advantage which may accrue to Ethel Baths Industries (Private) Limited if, in
future years, it increases its export market sales as a proportion of total sales. (2 marks)
[Total 30 marks]
Question 31
Anne Garwe, aged 56, is a foreign languages teacher at Morgenster School, a private boarding
school in Rusape. Anne has been in the teaching profession for the last 30 years. On 1 March
2014, the school promoted Anne to the head of the languages department, which is an
administrative position. She can also be subcontracted to other schools and foreign languages
associations to assist both their teachers and students during her free time. Anne also holds a
contract with the Ministry of Foreign Affairs as an interpreter on a consultancy services basis.

On 5 January 2014, Anne entered into a consultancy agreement with the Ministry of Education to
translate some local textbooks. The project is for three years ending on 31 December 2016.
Payment is only effected on completion of the translation of the textbooks and the agreed amount
is US$5 000 per translated textbook.

Details of Anne’s income for the year ended 31 December 2014 are as follows:

Employment income and benefits

(i) Anne receives a gross monthly salary of US$4 000 and an annual bonus equal to one month’s
gross salary payable in the month of December.

(ii) Anne’s two daughters are students at Morgenster School and the school pays 100% of the
tuition fees, levies and boarding fees on Anne’s behalf. One of Anne’s daughters attends a
special class for the blind at the school. The total tuition fees, levies and boarding fees for both
Anne’s daughters amounts to $27 000.

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(iii) Anne makes use of a fully furnished house at the school staff residential area. The school
deducts a monthly rent of US$300 from Anne’s salary. The fair value of the benefit she derives
from the use of the house and furniture is US$250 for the house and US$150 for the furniture on
a monthly basis.

(iv) Upon Anne’s appointment as the head of the languages department, the school offered her a
new motor vehicle with an engine capacity of 3300cc for her private use. Previously she made
use of a school vehicle with an engine capacity 2000cc. The school allowed her to buy the old
vehicle for US$2 000. The old vehicle was purchased five years ago for US$10 000. The current
market value for a similar vehicle is U$5 000.

(v) Anne contributes 7·5% of her salary monthly into a registered pension fund. The school
deducts her statutory NSSA contributions which amounted to US$202 for the year. Between 1
January 2014 and 31 May 2014, Anne contributed a total of US$1 500 towards a retirement
annuity fund which matured on 3 June 2014. She immediately became entitled to a monthly
annuity of US$750 for the next ten years.

(vi) Anne is a registered member of a medical aid society and during the year, a total of US$8
000 was paid as medical aid contributions for herself and her family. The Morgenster School
paid 60% of these contributions while the remainder were deducted from Anne’s salary.

(vii) Anne received a total of US$12 000 in acting allowances from the Morgenster School
during the year.

(viii) The school deducts the following amounts monthly from Anne’s salary upon her
instruction and pays the relevant amounts to the institutions concerned:
US$
Subscriptions to the Zimbabwe Teachers Union 15
Funeral policy to Perfect Peace Funeral Services 100
Life insurance policy to Royal Life Insurance Services 50

(ix) The school paid a total of US$17 000 to the Zimbabwe Revenue Authorities (ZIMRA) for
Anne’s PAYE for the year ended 31 December 2014.

Other non-employment income

(x) Anne successfully translated four textbooks under the terms of her contract with the Ministry
of Education.

(xi) Anne’s bank account was credited with a total of US$15 000 representing rental income
collected by an estate agent in respect of an investment property owned by Anne in Harare.

(xii) Anne raised invoices totalling US$30 000 for her subcontract work with other schools and
foreign languages associations. Anne paid Morgester School 10% of this amount under the terms
of a standing arrangement for use of the school’s resources.

Page 23 of 37
(xiii) The Ministry of Foreign Affairs paid Anne US$10 000 for her services as an interpreter
during the year.

Required:
(a) Explain, in general terms, how most fringe benefits are valued for tax purposes and how the
valuation of the benefits stated in (iii) and (iv) above differs from the general rule. (3 marks)
(b) List the amounts to be exempted from Anne Garwe’s gross income for the year ended 31
December 2014. Give brief reasons for your answers. (5 marks)
(c) Calculate Anne Garwe’s taxable income and income tax payable for the year ended 31
December 2014. Note: Indicate any amounts which are not taxable or not deductible by the use
of zero (0). (17 marks)
[Total 25 marks]
Question 32
Discuss the most appropriate method of claiming Capital Redemption Allowance (CRA) for a
fast growing mining company which is making a lot of profit (assume there are huge
technological advancements in the mining sector). In your response cite all the relevant provision
of the Act and legal cases. (25 marks)

Question 33

Discuss any Ten (10) ways that tax evasion can be curbed in Zimbabwe. (20 marks)

Question 34

Discuss the likely impact of regressive tax system as a way of levying corporate tax in promotion
of production in Zimbabwe. (20 marks)
Question 35
a) BW Limited has estimated its annual profit for 2014 to be $152,800.00. Compute GG
Limited’s 3rd QPD for 2014. (3 marks)
b) Outline five tax concessions offered to elderly taxpayers. (10 marks)
c) When is special initial allowance (S.I.A.) granted on movable and immovable property
used by the taxpayer for trade and business? (6 marks)
d) Explain how a housing benefit is determined for tax purposes where the house is:
i) In an urban municipal area. (2 marks)
ii) In a non-urban area such as at a mine or rural area. (2 marks)
[Total 23 marks]
Question 36
Mudzi (PVT) Ltd a registered operator is involved in manufacturing and wholesaling of clothing,
machinery and basic commodities. The company is also involved in exports. The company is in
category C. The following information was for the month of August 2014. The amounts are
inclusive of VAT wherever it is applicable

Page 24 of 37
Cash sales $25,000

Page 25 of 37
 Credit sales 30,000

Exports 5,000
Zero rated sales 5,000
Exempt sales – (Diesel) 3,000
Repossessed machinery cash sale 2,000
Expenses incurred
Stationery 2,000
Auto electrical repairs for delivery truck 1,000
Repairs on company vehicles 5,000
Salaries 8,000
Spare parts for delivery truck 12,000
Clothing purchases 5,000
New plant acquired from ZECO engineering 26,000
Bonuses paid to employees for exceeding month target 1,000
New T35 Trucks 43,000
Stock purchases zero rated 3,000
Tyres for the trucks 800
Diesel 7,000
Entertainment 2,800
Bad debts written off 2,000
2 computers @ $500 each 1,000
Computer consumables 5,000
Legal fees 1,000
NOTES

a) The company had 5 employees who are entitled to the use of company vehicles. The
vehicle’s engine capacities range between 1,600 to 1,900cc
b) The two new delivery Trucks for $43,000 were acquired from Willowvale Mazda Motor
Industries. The amounts are inclusive of VAT.

Page 26 of 37
c) The company issued a debit note of $2,000 to a client who had purchased clothing from the
company shop
d) The company received a debit note of $800 on bread which had been acquired in the previous
month
e) The company received a credit note from a supplier who had supplied them with spare parts
of $500,00 for the period January 2014
f) Legal fees were in respect of fees paid by the company to Elias and Partners Legal Firm for
representing the Managing Director for a divorce suit from his estranged wife
g) The entertainment was in respect of a cocktail party held for customers
h) The company also recovered a bad debt during the tax period of about $1,000 in respect of
supplies of clothing. The company had claimed input tax on the bad debt in November 2013
i) The company repossessed machinery whose value including VAT was $4200. The client had
only paid $1000. The consideration was the cash price of the machine. The machinery was
resold for $2000 during the tax period.
j) The two computers bought at $500 each were used one 95% and the other 85% for making
taxable supplies.
k) The bad debts included the following;
 Spare parts- $1200,00
 Diesel -$800,00
Required
a) Calculate the VAT payable or refundable show your all workings. (18 marks)

ZESA acquired machinery for use in the supply of electricity to replace the old and
malfunctioning transformers in Harare. The company acquired the machines from Flex
Engineering in January 2013 at a cost of $150,000 inclusive of VAT. The company claimed
input tax of 60% based on the revenues for the previous year. During the year ended 31
December 2013 revenues for taxable supplies decreased to 40% of the total revenue.

Required
Calculate the adjustment of tax that needs to be made. (4 marks)

Page 27 of 37
Mr Runde a new registrant for VAT made an application to claim VAT which had been incurred
in January 2014 in respect of stocks before he was registered for VAT. Mr Runde was only
registered for VAT in March 2014.
Required
Discuss whether Mr Runde is entitled to claim the tax, state the relevant provisions to support
your answer? (4 marks)
[Total: 26 Marks]

Question 37

The Zimbabwean tax legislation does not recognize a partnership as a “person” in the definition
of gross income, citing the relevant sections of the Income Tax Act (Chapter 23:06) outline how
partnerships are then taxed in Zimbabwe. (25 marks)
Question 38

Mr Tofara, who is 50 years old, purchased a principal private residence (PPR) and incurred a
cost of $90 million Zimbabwe Dollars in August 2006. This property was sold on 30 June 2011
and US$90,000.00 was realized.

Required
a) How much capital gains tax is payable?
b) If Mr Tofara used US$50,000.00 to buy another PPR, what will be the capital gains tax
payable?
Assuming the property referred to in a) and b) above was purchased on 10 May 2009 for
US$60,000.00 and sold on 30 June 2011 for US$90,000.00

c) How much is the capital gains tax payable?

d) If Mr Tofara used US$50,000.00 to buy another PPR, compute the capital gains tax
payable?
e) If Mr Tofara used US$100,000.00 to buy another PPR, compute the capital gains tax
payable. (30 marks)
Question 39
Martha Limited in February 2010 acquired 40 hectares of land for $600,000.00 which it
subdivided for development and resale. 60 plots of 0.5 ha each thus became available, with the
balance of the land being used for roads and other amenities. Development costs were:
$
Survey fees 10,000
Levelling and so on 25,000
Roads 76,000
Water reticulation 89,000
Total 200,000

Page 28 of 37
Sales of 40 plots were effected on 30 September 2015 at $20,000.00 each, half of which was
payable immediately and half on 30 June 2016 at which stage ownership would pass. Interest at
40% per annum was receivable on amounts outstanding.
The remaining plots were sold for cash on 1 May 2017 at $22,000. Assuming that all the terms
were met, the taxable income of Martha Limited for the years ended 31 December 2015, 2016
and 2017.
Required
Calculate the taxable income for each of the years the instalments are paid. (25 marks)

Question 40
Discuss the Zimbabwean tax system focusing on whether it should be Source-based or residence-
based, outline the benefits and shortcomings of each system. Marks will be awarded for citing
relevant tax heads that will be affected by each arrangement. (25 Marks)

Question 41

Discuss the main reasons why it might be necessary for the Government of Zimbabwe to
consider taxing income generated in the operations of churches in Zimbabwe. (25 marks)

Question 42
Capital Gains tax is viewed in some quarters of the society as a tax that subject taxpayers to
double taxation, in that, the income which is used to acquire specified assets will have been
subjected to Income tax and in some other cases also to VAT on construction of the immovable
property.
Critically analyze Capital Gains Tax in Zimbabwe as a tax head in light of the Income tax and
Value Added Tax. (25 marks)

QUESTION 43
Mrs Duri subdivides a piece of land with the intention of selling each plot separately. The cost of
Land was $712.50 for each plot to Mrs Duri.
She offers each plot for sale at $2,850.00 on the following terms:
a) A deposit of 45% on signing the agreement of sale;
b) The balance at the rate of $313.50 per annum; and
c) Ownership is not to pass until payment of the final installment.
She made the following sales:
Year 1 - on 1 January – 5 plots
Year 2 – on 1 January – 1 plots

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Year 3 – on 1 January – 2 plots

Required:
Compute the minimum taxable income from each of these transactions for each of the years in
which the installments are payable. A reconciliation statement is essential.
(25 marks)

Question 44
a) Chitova Limited is a dealer. The company made and received supplies for the month of
August 2017 as follows:
Receipts Consideration (US$)
Cash sales 45,600.00
Export sales 65,100.00
Bad debts recovered 7,100.00
Credit sales 35,600.00
Commission received 32,500.00
Dividend from a Zim company 1,000.00
Bank interest received 14,500.00
Total Receipts 201,400.00
Expenses:
Trade purchases 35,500.00
Salaries and wages 95,500.00
Bad debts written-off 5,500.00
Entertainment costs 15,200.00
Passenger Motor Vehicle 12,150.00
ZESA bill 6,400.00
Delivery van 35,450.00
Advertising 2,500.00
Telephone 3,500.00
Motor vehicle servicing 6,500.00
Total expenses 218,200.00
Required:
Calculate the VAT due or refundable for the month of August 2017. (18 marks)
Question 45
a) Define the term “person” and discuss why that term is important in Zimbabwean tax
legislation. (5 mark)
b) Compute the QPD due on or before 25 September 2018 for the following organization:
Chitova Limited made an estimated taxable income for the year ending 31 December
2018 of $741,222.22. (5 marks)

Page 30 of 37
 c) Discuss why the definition of “tax” and “source” is important in Zimbabwean tax policy.
Defining the term “source” is essential, in your explanation. (10 marks)
[Total Marks: 20]
Question 46
During the year ended 31 December 2011, Mr Moyo who turned 50 years in May 2011 sold the
following capital assets for $1,445,200.00:

US$
Sale of Principal private residence 1,365,000
Sale of 17,500 ordinary shares in a local unlisted company 60,200
Sale of 10,000 ZIMRE shares listed on the ZSE 20,200
$1,445,400

8,750 of the ordinary shares sold were acquired by inheritance in 1982 tax year and were valued
for $2,550 for estate duty purposes. A further 3,500 shares were acquired as a bonus issue in the
1982 tax year. These shares had market values of $1,050 at the time of issue. The balance of
5,250 shares was acquired as a bonus issue in the tax year ended 31 December 2000 when they
had a market value of $21,000.

The 10,000 ZIMRE shares were acquired in November 2009 for $300. The residence was
purchased by Mr Moyo in the year ended 31 December 2002 for $85,000. A swimming pool was
added to the property in the year ended 31 December 2007 for $30,000. Mr Moyo acquired
another principal private residence for $1,100,000.

Required
Prepare a detailed computation of his minimum capital gains tax payable in the tax year ended 31
December 2011. (10 marks)

Question 47
Discuss whether Zimbabwe needs zero-rated supplies and exempt supplies as a way of protecting
the poor in the society. What alternatives are effective in helping and protecting the poor since
VAT has the tendency of being a regressive tax? (20 marks)

Question 48
a) Discuss whether taxpayers indeed have a right to avoid tax and what governments can do
to curb tax avoidance. (10 marks)
b) Discuss the principles of ability to pay and proportionality critically – citing appropriate
examples. (10 marks)

Page 31 of 37
 c) Outline whether a progressive tax is constitutional in Zimbabwe – give reasons that can
be substantiated. (5 marks)
[Total: 25 marks]
Question 49
a) Define the term “taxation” clearly differentiate it from “user charges”. (10 marks)
b) Discuss the principle of a good tax system and highlight whether the Zimbabwe system
follows those prescription. (10 marks)
[Total: 20 Marks]
Question 50
Discuss the impact of a tax amnesty to the taxpayers’ compliancy, the taxing authority and tax
revenue generation. (25 marks)

Question 51
Assume Jacob, a lawyer, drafts a will (for which he would normally charge $250) for Amy, a
dentist, and Amy does dental work for Jacob (for which she would normally charge $250).

Does either party have any income?

Assume Jacob mows Amy’s lawn while she is on holidays and Amy mows Jacob’s lawn while
he is on holidays.
Does either party have any income?
If these cases are treated differently, explain why. (10 marks)
Question 52
Discuss fully how a partnership is taxed in Zimbabwe, you discussion should cover the relevant
sections in the Income Tax Act as well as decided cases. (18 marks)
Question 53
Shabani Mashaba Mine Limited is a mine which mines asbestos and is situated 50 kilometres
west of City of Masvingo. The unredeemed balance of capital expenditure brought forward as at
31 December 2018 was $800,000.00. Sales of asbestos during the year realized $1,980,000.00.
During the year the company sold excess mining equipment and realized $55,000.00. The
company received interest from CABS savings account in the sum of $10,200.00. The following
capital expenditure was incurred during the current year:
$
Page 32 of 37
Purchase of a Toyota Camry 11,500.00
Earthmoving equipment 350,000.00
Mining buildings 300,000.00
Plant and equipment 65,000.00
Computers 10,700.00
Staff housing 97,510.00
Mine clinic 60,000.00
Nurse’s house 65,000.00
Shaft sinking 210,500.00
Purchase of boiler 15,400.00

The following expenses were incurred:

$
Salaries and wages 500,500.00
Goodwill written-off in P/L 2,500.00
Administrative expenses 45,000.00
Insurance (Allowable) 12,000.00
Depreciation for the year 31,400.00
Rentals 25,300.00
Interest 3,000.00

Additional Notes:
 The staff houses were being used by mining engineers.
 The salaries and wages figure include $25,000.00 paid to the company’s Marketing
Managers as entertainment allowances.
 The interest was in respect of a loan in the sum of $200,000.00 advanced to the
company by Steward Bank for mining operations of which $50,000.00 was loaned to
Mr Nyoni who is the Managing Director by at no interest.
 Administration expenses include:
 $1,500.00 legal fees incurred in tracing a trade debtor.
 $5,000.00 being fine imposed by EMA for failure to submit the Environment
Impact Assessment form on time.
 $2,000.00 to a political party to finance election victory celebrations.
Required:
Calculate the company’s tax payable for the year ending 31 December 2018 assuming that it has
claimed capital redemption allowance using Para 4(2) of the 5 th Schedule of the Income Tax Act
(Chapter 23:06). The estimated life of the mine by the end of the year is 7 years.
(25 marks)
Question 54
Churches and other “not for profit making organisations” are exempt from corporate tax in
Zimbabwe. Discuss the factors that might have led ZIMRA to reconsider this long standing
position and outline your position on this proposal. (25 marks)

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Question 55
Discuss the importance of government having to tax its residents and or citizens as a way of
raising revenue instead of relying on donor funds to finance public expenditure. (15 marks)

Question 56
Critically analyse the impact of excise duty in trying to internalize the problems cause by
consumption of alcohol and tobacco. Outline some of the other regulations put in place by your
government in trying to reduce the negative externalities caused by consumption of these
commodities. (20 marks)

Question 57

(a) Murisi who is a livestock farmer was forced to sell his livestock of 100 herd due to an outbreak of
an epidemic disease in the 2017/2018 season. At the beginning of the year he had 350 herd. When
the situation improved he restocked by 70 herd for $140 000. At the end of the year he had 320 herd.
Mr Murisi’s assessed carrying capacity of the land (ACCL) was 300 herd. Given the above
information you are required to calculate the restocking allowance and comment on the outcome [10]

(b) During a drought proclaimed period a farmer sold 25 oxen for $50 000. The FSV of the oxen was
$300. The direct herd expenses were $30 000. Opening stock was 160 oxen and closing stock was
140 oxen. Calculate the taxable income and tax in the year of sale if one takes advantage of all the
elections allowed by the Act [5]

(c) Maxine who turned 55 years on the fifth of January 2018, purchased a principal private residence
at a cost of $120 000 on 1 st December 2017. In January 2018, she renovated the house by adding a
swimming pool and a gazebo at a cost of $20 000. In October 2018 she sold the house for $200 000.
How much is the capital gains tax, if any, on this transaction [10]

Question 58
The Unredeemed Balance of Capital Expenditure (UBCE) for Ngezi Platinum Mine comprised the
following:
$
Machinery and Plant 15 000
Shaft sinking 5 000
Mine buildings 25 000
Interest (Allowable) 1 200
Staff housing (3 units) 150 000
Passenger motor vehicle (2 units) 25 000
Repairs 2 800

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 224 000
Sales of platinum for the year amounted to $100 000 and sale of machinery realized $8 000. The
following expenses were also incurred:
$
Extraction cost of minerals 16 000
Wages and salaries 22 000
Mine building improvements 8 000
Repairs 5 400
Interest (allowable) 2 000
Required
(a) Calculate the taxable income using the:

i (i) New mines Basis [8]

ii (ii) Life of Mine Basis [6]
iii (iii) Mixed Method Basis [8]

(b) Given the above indicate which method you would prefer and why [3]

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 APPENDICE TO TAXATION PAPER

Table 1.1: Annual Individual Tax (January 2019 to July 2019)

From To Amount in Tax Tax Cumulative

Bracket
Rate (%) ($) Tax ($)

0 to $2,450 $2,450 0% $0 $0

2,451 to $10,500 $8,050 20% $1,610 $1,610

10,501 to $35,000 $24,500 25% $6,125 $7,735

35,001 to $70,000 $35,000 30% $10,500 $18,235

70,001 to $105,000 $35,000 35% $12,250 $30,485

105,001 to $140,000 $35,000 40% $14,000 $44,485

140,001 & Above - 45% - -

NB: For US dollar remuneration, divide the figures in the tax tables above by 10 to get the USD Tax
tables.

Table 1.2: Annual Individual Tax (August 2019 to December 2019)

From To Amount in Tax Tax Cumulative

Bracket
Rate (%) ($) Tax ($)

0 to $3,500 $3,500 0% $0 $0

3,501 to $15,000 $11,500 20% $2,300 $2,300

15,000 to $50,000 $35,000 25% $8,750 $11,050

50,001 to $100,000 $50,000 30% $15,000 $26,050

100,001 to $150,000 $50,000 35% $17,500 $43,550

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 150,000 & Above - 40% - -

2. Corporate Tax 25%

3. AIDS Levy 3%

4. Motoring benefit:
Engine capacity Monthly benefit
Up to 1 500cc US$300.00
1 5001cc to 2 000cc US$400.00
2 001cc to 3 000cc US$600.00
3 001cc and above US$800.00

NB: These RATES are for Examination purpose only.

END OF EXAMINATION

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